Big banks have formed an unusual alliance with consumer advocates to urge the government to allow huge portions of credit card debt to be forgiven, a turnabout from recent years when the banking industry lobbied strenuously to make it harder for consumers to erase their credit card debts in bankruptcy.

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The new pilot program — which the banks hope will become permanent — could involve as many as 50,000 people struggling with credit card debt. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40 percent.

"There's obviously a financial benefit to the financial institutions to step up to the plate right now," said Susan Keating, president and chief executive of the National Foundation for Credit Counseling, which has 108 member organizations around the country. "We absolutely support the proposal."

In an increasingly tough economic climate, banks and other mortgage lenders already have been agreeing to modify loans of distressed homeowners to help them avoid foreclosure. Now, banks making credit card loans have reached a point where they can lose less by forgiving part of the debt than seeing the consumer walk away entirely.

Credit cards — the ubiquitous plastic rectangles that have become an integral part of American life and the economy — now look to be the latest domino to drop in a financial crisis that started with subprime mortgages and continually takes new twists.

Amid rising job losses, consumers — even those with strong credit records — have been defaulting at high levels on their credit cards. Banks already battered by the mortgage and credit crises are bleeding tens of billions in red ink from the losses. The largest credit-card banks each set aside between $1 billion and $3.5 billion in the third quarter for losses on card loans as their profits plummeted.

Credit card charge-off rates, balances written off as unpaid, rose to 6.8 percent in August, up 48 percent from a year earlier, according to Moody's Investors Service.

Americans are lumbering under about $900 billion in credit card debt, according to the latest available Federal Reserve figures. People who are in credit counseling, on average, carry seven cards.

Many of the people now having trouble making their credit card payments are in a double or triple whammy: their mortgages or car loans also may be under stress.

And for many, the torrent of envelopes bearing credit card offers at low initial rates — much like the old "teaser" rates on subprime mortgages — has recently been replaced by more somber notices of crimped credit lines, hikes in interest rates or even accounts being closed as lenders tighten the reins to reduce their risk.

The new proposal pitched to federal regulators by the Financial Services Roundtable, which represents more than 100 big banks and other financial companies, and the Consumer Federation of America, would allow lenders to reduce by as much as 40 percent the amount of credit card debt owed by deeply indebted consumers in a pilot program.

It recognizes that "there are some critical problems with credit card debt," said Bert Ely, a banking industry consultant based in Alexandria, Va. "We're going to see more of these efforts to try to minimize the situation."

Under the groups' proposal to U.S. Comptroller of the Currency John Dugan, whose Treasury Department agency oversees national banks, a pilot project would allow big credit card companies to sharply reduce the amounts owed by consumers in over their heads who don't qualify for the repayment plans now available.

Nearly all the biggest credit card banks have agreed to such a pilot program in which lenders would forgive as much as 40 percent of the amount consumers owe, allowing them to pay back the remainder over time.

The test program could reach as many as 50,000 borrowers, said Scott Talbott, senior vice president at the Roundtable. Borrowers would have to be in a counseling program for their credit card debt. The amount of debt to be forgiven would be determined case by case, depending on the borrower's financial condition; those receiving close to the maximum forgiveness level would be nearing a personal bankruptcy filing.

And there would be a tax benefit. Borrowers would be able to defer payment of income taxes they owe on the forgiven part of the debt until after the remainder was paid off. The lenders could wait until then to book their loss on the forgiven debt.

"Both parties win," Talbott said. June Selby, who nearly filed for bankruptcy three years ago when she was buried under nearly $32,000 in school loans, saw both sides but said she didn't like the idea of anyone getting a free ride.

Selby, 60, worked with credit counselors to pay off nearly half the balance and is on track to be debt free by 2011.

"If (the proposal) makes it possible to maintain a sense of integrity and pay back debt without going into bankruptcy, that's one thing," said Selby, a certified nurse in Lawrenceville, Ga.

But she said she was against the idea of a free handout for people who've simply been irresponsible.

"There just has to be some accountability. Nobody is bailing me out. I had to work very hard to keep from bankruptcy and foreclosure," she said.